Sat. May 21st, 2022

Developer’s recent comments raise expectations of direct government involvement and managed debt restructuring.

After swinging from deadline to deadline, China Evergrande Group is once again on the verge of default, with pessimistic comments from the real estate developer raising expectations of direct government involvement and a managed debt restructuring.

After making three eleventh-hour coupon payments in the past two months, Evergrande will once again face the end of a 30-day grace period on Monday, with fees this time at $ 82.5 million.

But a statement late Friday that said creditors had demanded $ 260 million and that they could not guarantee enough coupon repayment funds, urged authorities to summon its chairman – and wiped out one-eighth of its share market value on Monday.

Evergrande was once China’s top-selling developer, but is now struggling with more than $ 300 billion in liabilities, which means a collapse by the real estate sector and further.

Friday’s statement was followed by one of the authorities in the company’s home province, Guangdong, who says they will send a working group to Evergrande at the developer’s request to oversee risk management, strengthen internal control and maintain operations .

The central bank, banking and insurance regulator and security regulator also released statements saying the risk to the broader real estate sector could be limited.

Short-term risk of a single real estate firm will not undermine market financing in the medium or long term, the People’s Bank of China said. Housing sales, land purchases and financing “have already returned to normal in China”, it said.

Analysts said authorities’ joint effort indicated that Evergrande had probably already entered a managed debt-asset restructuring process to reduce systemic risk.

Morgan Stanley said in a report that such a process would involve coordination between authorities to maintain the normal operation of real estate projects and negotiations with onshore creditors to ensure funding for project development and completion.

Regulators are also likely to facilitate the discussion of debt restructuring with foreign creditors after business operations begin to stabilize, the US investment bank said.

Evergrande’s November 2022 bond – one of two bonds that could go into default on Monday due to default – traded at the difficult price of 20,787 US cents on the dollar on Monday, compared to 20,083 cents at the end of Friday.

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